April 13, 1999
VIA TELECOPY AND
FEDERAL EXPRESS
Mr. Robert Gentz
DenAmerica Corp.
7373 N. Scottsdale Road, Suite D-120
Scottsdale, Arizona 85253
RE: $3,000,000.00 OF NEW EQUIPMENT FINANCING AND MODIFICATION AND
CONSOLIDATION WITH $15,400,000.00 EXISTING EQUIPMENT FINANCING
FOR A TOTAL LOAN NOT TO EXCEED $18,400,000.00 OF EQUIPMENT
FINANCING FOR DENNY'S AND BLACK-EYED PEA RESTAURANTS (THE
"PROPERTIES")
Dear Mr. Gentz:
CNL Fund Advisors, Inc. (the "Company") hereby issues this commitment
letter ("Commitment") by which it agrees to enter, or cause an affiliate to
enter, into equipment financing transactions (the " Loan") with DenAmerica Corp.
and Black-eyed Pea, U.S.A. ("Borrower") as follows: (a) a new Three Million
Dollars ($3,000,000.00) Balloon Promissory Note, to be consolidated with (a) an
existing Eight Million Seven Hundred Twenty-five Thousand Dollars
($8,725,000.00) Balloon Promissory Note, (b) an existing Four Million Five
Hundred Thousand Dollars ($4,500,000.00) Balloon Promissory Note, and (c) an
existing Two Million Two Hundred Thousand Dollars ($2,200,000.00) Balloon
Promissory Note, into a Consolidated Promissory Note not to exceed Eighteen
Million Four Hundred Thousand Dollars ($18,400,000.00) for equipment which is
incorporated into Black-eyed Pea and Denny's Restaurants (the "Equipment"), all
of which is secured by a first security interest in restaurant equipment in
Denny's Restaurants and Black-eyed Pea Restaurants (the locations of which are
listed on Schedule A attached hereto and made a part hereof by this reference
thereto).
This Commitment provides funding beginning as of the date hereof and
ending not later than May 15, 1999. Funding under this Commitment and the
obligations of the Company hereunder are both expressly conditioned upon there
being no unanticipated disruptions in Company's funding sources.
Mr. Robert Gentz
DenAmerica Corp.
April 13, 1999
Page 2
1. Adverse Conditions. This Commitment shall be contingent upon no
material adverse change in the financial condition of Borrower or the occurrence
of any event which may, in the Company's reasonable judgment, have a material
adverse effect upon the Borrower. In addition, the Company's obligation
hereunder is subject to the ongoing review of Borrower's financial statements.
To that end, the Company shall have the right to review (a) monthly unaudited
statements of Borrower, (b) monthly profit and loss statements of the
Restaurants in which the Equipment is located, and (c) quarterly unaudited
statements of Borrower, along with any other financial information the Company
may reasonably require.
2. Legal Documents. Company's counsel will prepare all notes, security
agreements, financing statements, and related documents. Borrower agrees that
approval of such documents shall not be unreasonably withheld and that Borrower
shall provide the following.
A. Such documentation as is necessary to evidence the
fact that it is validly organized and in good
standing under the laws of the state of its formation
and that it is authorized to do business in the state
where the Equipment is located, together with such
resolutions or approvals as are required for it to
enter into this Commitment and to consummate the
transactions contemplated hereby.
B. A copy of Borrower's equipment financing documents
relating to and encumbering the Property, if any.
C. Lien waivers and other documentation requested by
Company executed by Borrower's Landlords and other
parties to perfect Company's interest in the
Equipment, free and clear of other liens and
encumbrances.
D. Such other reasonable information or documentation as
the Company might request as a prudent lender in
order to finalize the transactions contemplated
hereby and to comply with the requirements of all
local, state and federal agencies, and all
regulations and laws to which the Company and its
affiliates are subject.
3. Opinion of Counsel. As a condition to closing, Company's counsel
shall require the opinion of Borrower's counsel as to such matters as Company's
counsel may deem appropriate, including but not limited to:
Mr. Robert Gentz
DenAmerica Corp.
April 13, 1999
Page 3
(a) Borrower is duly organized and validly existing under the laws of
the state of their formation; has the power and its representatives have been
duly authorized to enter into the transactions contemplated by this Commitment;
and all necessary approvals required to consummate the transactions contemplated
hereby have been obtained.
(b) The Loan Documents have been duly authorized, executed and
delivered by Borrower and are the legal, binding, valid and enforceable
obligations of Borrower in accordance with their respective terms, except as the
enforcement of them may be limited by bankruptcy, insolvency, moratorium and
other applicable debtor relief laws, which should not make them inadequate for
the practical realization of the benefits to be afforded Company by them.
(c) Each of the Loan Documents to be recorded is in appropriate form
for recordation in the applicable recording office.
(d) To counsel's knowledge, there are no material legal actions or
proceedings pending or threatened against or with reference to Borrower or the
Property, as applicable, before any court, quasi-judicial or administrative body
or regulatory agency.
(e) The Loan does not violate in any manner the usury laws of the
State, and the manner and payment of interest under the Loan and all charges
required to be paid under the Loan (including any prepaid interest, service
charges, participation payments, additional interest, Loan commitment fees, Loan
processing fees, and other charges contemplated, if any) are neither illegal nor
usurious in any manner under the laws of the State.
(f) The execution and delivery of the Loan Documents by Borrower, do
not violate, conflict with, result in a breach of or default under any
applicable statute, regulation, rule, order, or other legal requirement
applicable to Borrower or any material agreement by which Borrower or its
properties are bound, or result in the creation or imposition of any lien,
charge or encumbrance upon the assets of Borrower other than as contemplated by
the Loan Documents.
(g) All taxes and recording, registration or filing fees required to be
paid to any governmental authority with respect to the execution, recording,
registration or filing of any of the documents securing the Loan have been duly
paid in full except for nominal fees to be paid with respect to the recording of
the Loan Documents.
4. Closing. At closing, Borrower shall execute and/or deliver to the
Company all documents, monies, instruments and other items required by this
Commitment. The Company's obligation to close is conditioned upon its receipt
and approval of all such documents, monies, instruments and items.
Mr. Robert Gentz
DenAmerica Corp.
April 13, 1999
Page 4
5. Loan Financing. The Company agrees to enter or cause an affiliate to
enter into equipment loan financing transactions in accordance with the terms
and conditions of this Commitment. The Borrower and the Company shall execute a
Note or Notes and other documents as may be required by the Company
(collectively, the "Financing Documents"), which Financing Documents shall be in
form and contain terms satisfactory to the Company and Borrower. The Company
acknowledges that it has agreed to provide new equipment loan financing in an
amount not to exceed Three Million Dollars ($3,000,000.00) (the "New Note"), and
to consolidate the New Note with (a) an Eight Million Seven Hundred Twenty-five
Thousand Dollars ($8,725,000.00) Balloon Promissory Note, (b) a Four Million
Five Hundred Thousand Dollars ($4,500,000.00) Balloon Promissory Note, and (c) a
Two Million Two Hundred Thousand Dollars ($2,200,000.00) Balloon Promissory
Note, into a term note with a term not to exceed seven (7) years, and with
monthly payments based upon an interest rate of ten and one-half percent (10.5%)
per annum and a seven (7) year amortization schedule. In connection with any
such Loan provided by the Company, Borrower shall be required to pay all
customary equipment financing fees and costs, including without limitation, a
two percent (2.0%) commitment/origination fee for the New Note payable to the
Company, taxes, and all closing costs, along with any applicable documentary
stamp taxes, filing fees, and attorney's fees and costs. The Consolidated
Balloon Promissory Note or any loan agreement associated therewith shall be
modified to provide that it shall become due and payable upon a "Change of
Control" as defined in that certain Indenture (Series B Notes) between
DenAmerica Corp. and State Street Bank and Trust Company dated March 29, 1996,
which may be waived by Company's in its sole discretion.
Company acknowledges that the terms of the Financing Documents shall
not include a prepayment premium so long as the Borrower prepays the loan while
the Company or one of its affiliates is the holder of the Financing Documents.
In the event the Company or one of its affiliates sells or assigns the Financing
Documents, the Lender shall give Borrower one hundred and twenty (120) days
prior written notice of such proposed sale or assignment, and during such one
hundred and twenty (120) day period the Borrower shall have the right to prepay
the entire unpaid principal balance of the loan, plus accrued interest and any
other sums due Company at the time of prepayment, without payment of a
prepayment premium. The Financing Documents shall provide that in the event the
Company or one of its affiliates sells or assigns the Financing Documents, then
the Borrower shall pay to the holder of the Financing Documents a prepayment
premium equal to the entire unpaid principal balance, accrued interest, and any
other sums due Company at the time of prepayment, plus the greater of (A)
Breakage Costs (as defined below) or (B) (i) the present value of all remaining
payments of principal and interest, discounted at the Treasury Rate, less (ii)
Mr. Robert Gentz
DenAmerica Corp.
April 13, 1999
Page 5
the amount of principal being prepaid, but shall not be less than one percent
(1%) of the then outstanding principal balance of the Loan (the "Prepayment
Premium"). The "Treasury Rate" shall be the yield on securities issued by the
United States Treasury having a maturity equal to the remaining term of the
Loan, as quoted in Federal Reserve Statistical Release [H.15(519)] under the
heading "U.S. Government Securities-Treasury Constant Maturity" for the date
most nearly two (2) weeks before the prepayment date (or a comparable rate if
this rate is no longer published) [adjusted to reflect a monthly payment
interval]. If the above rate is not available for a term equal to the remaining
stated term of the Loan as of the date of such prepayment, the Treasury Rate
shall be determined by interpolating between the yields on securities of the
next longer and next shorter maturity. "Breakage Costs" shall mean an amount
equal to the greater of:
(a) 1% of the entire unpaid principal balance of the
Note; or
(b) (i) the present value of all remaining payments
of principal and interest discounted at a
discount rate equal to the "Swap Rate on
Date of Prepayment,"
MINUS
(ii) the present value of all remaining payments
of principal and interest discounted at a
discount rate equal to the "Swap Rate on
Date of Note".
"Swap Rate on Date of Note" shall be defined herein as the fixed rate,
as determined by Company in its reasonable discretion, which is paid by
Company (or which otherwise would be required to be received by an
established and active interest rate swap counterparty, whether or not
a swap transaction is actually entered into) on the date of the Note
for a fixed rate swap in the notional amount and with the amortization
terms of the Loan, in exchange for a floating rate equal to the 30-day
LIBOR (London Inter-Bank Offering Rate).
"Swap Rate on Date of Prepayment" shall be defined herein as the fixed
rate, as determined by Company in its reasonable discretion as of the
date and time of any prepayment hereunder, which the Company can
contract to receive (or which otherwise would be paid by an established
and active interest rate swap counterparty, whether or not a swap
transaction is actually entered into) under a fixed rate swap in the
notional amount and with the remaining amortization terms of the amount
being prepaid, in exchange for a floating rate equal to the 30-day
LIBOR (London Inter-Bank Offering Rate), minus one-quarter of one
percent (25 Basis Points).
Mr. Robert Gentz
DenAmerica Corp.
April 13, 1999
Page 6
6. Special Conditions. The Company's obligations to fund under this
Commitment shall be contingent upon occurrence of all of the following special
conditions:
A. SELECTION OF RESTAURANT EQUIPMENT FOR PURPOSES OF PROVIDING
EQUIPMENT COLLATERAL. Selection of the restaurant equipment
for purposes of providing equipment collateral shall be by
mutual agreement of the parties.
B. CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Borrower shall
maintain a Consolidated Fixed Charge Coverage Ratio of not
less than 1.1:1 on an aggregate basis for all Denny's or
Black-eyed Pea Restaurants whose equipment serves as
collateral for the Loan based on an EBITDA calculation (the
"EBITDA FCCR"). The EBITDA FCCR means, for the trailing twelve
(12) month period, the ratio of (a) the Borrower Cash Flow for
such period to (b) the Borrower's Debt Service for such
period. "Cash Flow" means only as to the EBITDA FCCR, for any
period, an amount equal to (a) the sum of (i) pre-tax income
(less general and administrative expenses not to exceed 3 1/2%
of gross sales), (ii) interest expense, (iii) all non-cash
amounts in respect of depreciation and amortization, and (iv)
Non-Recurring Expenses less (b) Non-Recurring Income, all as
reflected on the Borrower's financial statement for such
period. "Debt Service" means only as to the EBITDA FCCR all of
the Borrower's interest, the current portion of principal, and
current portion of capital lease obligations.
C. REPORTING. Borrower shall keep books and records reflecting
its financial condition including, but not limited to, the
operation of the Premises in accordance with generally
accepted accounting principles consistently applied. The
Company shall have the right, from time to time at all times
during normal business hours, to examine such books, records
and accounts at the offices of the Borrower or other entity
maintaining such books, records and accounts and to make such
copies or extracts thereof as the Company shall desire. During
the term of the Loan, the Borrower must furnish or cause to be
furnished to the Company within one hundred twenty (120) days
of the close of each of their respective fiscal years, fiscal
year end audited current signed financial statements (annual
balance sheet and a profit/loss statement) of Borrower, and an
income and expense statement of the operation of the Premises,
all which must be "Presented To" the Company. Borrower shall
also annually furnish to the Company (i) annual U.S. Income
Tax Returns, (ii) a statement disclosing all contingent
liabilities, and (iii) such interim statements as may
reasonably be required by Company, from time to time. Borrower
shall advise Company of its respective fiscal year-end dates
and shall notify Company in writing, of any change in such
year-end dates. During the term of the Loan, the Borrower
Mr. Robert Gentz
DenAmerica Corp.
April 13, 1999
Page 7
shall furnish to Company within forty-five (45) days after the
end of each fiscal quarter of Borrower an unaudited financial
statement of Borrower and a statement of income and expenses
of the Premises. Finally, Borrower shall furnish to Company
within thirty (30) days after the end of each fiscal month of
Borrower an unaudited financial statement of Borrower and a
profit and loss statement relating to each of the 65
restaurants on which the equipment is located.
D. DEBT FINANCING COMMITMENT. Company's and Borrower's
obligations hereunder are contingent on DenAmerica Corp.'s, or
a special purpose bankruptcy remote entity's, execution
simultaneously herewith of a Commitment for debt financing
from CNL Financial Services, Inc. or one of its affiliates in
an amount not to exceed Seventeen Million One Hundred Thousand
Dollars ($17,100,000.00) to be secured by first priority
leasehold mortgage and security interests in approximately
thirty-four (34) Denny's located in Texas, Arizona, Colorado,
Idaho, Utah, Missouri, Oklahoma, Louisiana, Arkansas and
Florida (the "Debt Financing Commitment"). All applicable
special conditions of the Debt Financing Commitment are hereby
incorporated by reference.
E. CNL GROWTH CORP. NOTES. DenAmerica Corp. has an outstanding
promissory note in the original principal amount of Seven
Million Seven Hundred Thousand Dollars ($7,700,000.00), of
which there remains outstanding approximately $6,900,000.00
and an outstanding Convertible Debenture Agreement in the
original principal amount of Four Million Four Hundred
Thousand Dollars ($4,400,000.00) (together the "Growth Corp.
Notes"). DenAmerica Corp. agrees to (i) execute documentation
necessary such that all rights and remedies available to Jack
Lloyd and William Howard under those certain Series B Notes
shall also be available to CNL Growth Corp. under the Growth
Corp. Notes (the "Remedies"); (ii) execute a tri-party
agreement, intercreditor agreement or other appropriate
documentation with the Company, Jack Lloyd, William Howard,
and Banque Paribas, if necessary, to effectuate the Remedies;
and (iii) provide a guaranty from Black-eyed Pea, U.S.A. of
the Growth Corp. Notes.
F. POST-CLOSING DOCUMENTATION. Delivery by Borrower of all
documentation due to the Company, CNL Growth Corp., or one of
their affiliates, including but not limited to Landlord
Estoppels, Real Property Waivers, UCC Financing Statements,
and Lease Amendments.
Mr. Robert Gentz
DenAmerica Corp.
April 13, 1999
Page 8
G. PROCEEDS OF LOAN. The proceeds of the Loan shall be applied
first to payment of, including but not limited to, all past
due principal and interest payments, taxes, rents, insurance
premiums, property taxes, and any other sums due the Company,
CNL American Property Funds, LP, or one of their affiliates,
under any existing loans or leases.
H. ESCROW OF PROPERTY TAXES. Beginning on the first day of the
first full month following closing of the Loan contemplated
hereunder, and continuing on the first day of each month
thereafter during the term of the applicable loan or lease,
Borrower shall escrow one-twelfth (1/12) of the annual amount
necessary to pay ad valorem and real property taxes due on the
real and personal property which is the subject of any lease
or collateral for any loan by Lender or one of its affiliates
to Borrower or one of Borrower's affiliates (the "Escrow
Payment"). On the first day of the second full month following
closing, Borrower shall pay those amounts necessary to fully
fund the escrow account, to date. Failure to make any monthly
Escrow Payment shall constitute a default under the applicable
loan or lease. Lender's obligations hereunder are contingent
on Borrower's or Borrower's affiliates executing modifications
to any and all such leases or loans as may be required by
Lender in its reasonable discretion to effectuate the
requirements of this paragraph.
7. Applicable Law. This Commitment shall be construed in accordance
with the laws of the State of Florida. It is agreed that time shall be of the
essence all terms and provisions of this Commitment.
8. Survival. The terms and conditions of this Commitment shall survive
closing with respect to the transaction contemplated herein.
9. Commitment Period. This Commitment shall expire unless, on or before
ten (10) business days from the date of this Commitment set forth above, this
Commitment is accepted and returned to the Company.
10. Assignment of Commitment. This Commitment is not assignable by
Borrower. The Company may assign this Commitment in whole or part to an
affiliate of the Company without Borrower's consent.
If this Commitment is acceptable to you, please sign in the space
provided below and return one executed original letter to my office. Following
Mr. Robert Gentz
DenAmerica Corp.
April 13, 1999
Page 9
receipt of the executed Commitment, I shall instruct our legal counsel to
prepare definitive documents consistent with the foregoing terms and conditions.
If you have any questions, please do not hesitate to call me.
Very truly yours,
CNL FUND ADVISORS, INC.
By: /s/ John T. Walker
--------------------------------------
John T. Walker, Chief Operating Officer
ACCEPTED AND AGREED:
As to Borrower
BLACK-EYED PEA, U.S.A.
By: /s/ Robert J. Gentz
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Name:
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As its:
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Date:
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As to BORROWER on $18,4000,000.00 Consolidated Note
and GUARANTOR on the Growth Corp. Notes
DENAMERICA CORP.
By: /s/ Robert J. Gentz
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Name:
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As its:
------------------------
Date:
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